Oil falls below $70 on US recession fears

Oil prices fell below $70 a barrel Wednesday in Asia as investors shrugged off a looming OPEC production cut after company forecasts suggested the U.S. may be headed for a severe economic slowdown that crimps crude demand.

Light, sweet crude for December delivery dropped $2.73 to $69.45 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore.

The November contract expired Tuesday and fell $3.36 to settle at $70.89. Last Thursday, that contract had declined as low as $68.57 a barrel, the lowest since June 2007.

Crude investors have followed equity markets this week, looking for signs on how the U.S. economy will weather the current global financial turmoil. On Tuesday, DuPont Co., Sun Microsystems and Texas Instruments Inc. reported disappointing earnings and bleak forecasts, sending the Dow Jones industrials average down 2.5 percent.

"Oil is now highly correlated with the stock market," said Clarence Chu, a trader with market maker Hudson Capital Energy in Singapore. "People are looking to the Dow for sentiment on the economy."

The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global oil supply, has signaled it plans to announce an output quota reduction at an emergency meeting Friday in Vienna.

But investors are skeptical about how much of the cut will be implemented, given the history of OPEC members exceeding their production quotas.

"There should be a short-term boost to prices when they announce a cut on Friday," Chu said. "But OPEC production has always been above their quotas, so there's a credibility problem."

Crude oil is down 52 percent from its peak of $147.27 reached in mid-July.

A stronger dollar this week has also pushed oil prices lower. Investors often buy commodities like crude oil as an inflation hedge when the dollar weakens and sell those investments when the greenback rises.

The euro fell Wednesday to $1.2820 from $1.3005 on Tuesday while the dollar was steady at 100.15 yen.

Investors are also watching for signs of slowing U.S. demand in the weekly oil inventories report to be released Wednesday from the U.S. Energy Department's Energy Information Administration. The petroleum supply report was expected to show that oil stocks rose 2.9 million barrels last week, according to the average of analysts' estimates in a survey by energy information provider Platts.

The Platts survey also showed that analysts projected gasoline inventories rose 3.0 million barrels and distillates went up 600,000 barrels last week.